How charitable are you feeling?
You see, neither Spotify nor Pandora is making any money, and they could really use a little bit of yours. So, if you are feeling charitable and believe in their cause, sign right up, and let the giving begin!
If you heard the real numbers, though, you might change your mind about that donation. They’re quite staggering. Pandora’s stock price has tripled in the last 12 months, and they have a stock market valuation of over $7 billion dollars. At the same time, they have yet to create a profit. Spotify has not yet gone public, but it is anticipated to do so in the near future. Initial estimates put Spotify’s valuation at close to $10 billion dollars.
Don’t feel sorry for them, though. This is the new model for becoming a Wall Street darling. In effect, both of these companies have created a business model that offers a great product to music fans but fails to charge those fans a reasonable amount for the experience. Therefore, the companies lose money. Then, they use their losses as an excuse to pay musicians virtually nothing for their music. By the way, the best music streaming interface in the world is useless if it has no music to play.
These companies might feel that they cannot get fans to pay a fair amount for streaming music—probably a correct assumption, by the way—so instead they offer it for free and let the musician pay for it, not the listener. Sound crazy? Some people would argue that the listener pays by listening to commercials, or by paying a fee to hear commercial-free music. But, if you examine the pitiful payout that musicians receive, it will become clear who is footing the bill.
Somewhere along the way, the indie music community bought into the idea that streaming music is a good thing. After all, can’t a person listen to traditional (terrestrial) radio for free? How could streaming be any different? The answers are both subtle and significant.
Traditional Radio vs. Streaming
In the past, when we heard music on traditional radio and really liked it, off to the music store we would go. Why? We wanted control over our listening. A listener has no control whatsoever of what plays on traditional radio. The most they can do is change the station. Purchasing the music allowed us to control how often we were able to listen to it.
Streaming changed this. With streaming, there is no reason to purchase the music. On Pandora, users have substantial control because they can use the tools that Pandora provides to tailor the station to fit their taste. With Spotify, the listener has complete control. Play what you want, how you want it, when you want it, and as often or little as you like. This is nothing like traditional radio.
What’s worse is that traditional radio stations are jumping on the streaming bandwagon, just like everyone else. Platforms like iHeartRadio have the potential to be just as damaging to musicians as any other music streaming services. Don’t get us wrong; we are in favor of listening to traditional radio stations online; however, we are not in favor of traditional radio stations streaming music self-crafted to anyone’s personal listening preferences.
Worse still is this: Pandora is making the case with Congress to lower payments to musicians. Pandora says they cannot compete with terrestrial radio because radio pays a lower royalty. In fact, Pandora is asking for legislation that lowers their payments by 50% or more. This is ridiculous! Traditional radio and music streaming are two entirely different things.
Let’s call streaming music what it really is: a financial failure. Generally, when a business model fails because it is not financially viable, the business closes and declares bankruptcy. The only way that streaming music survives is if someone picks up the financial shortfall; right now, that someone is the musician.
What Does This Mean To You As A Musician?
A streaming music company’s success is realized at the expense of the musicians who unwittingly contribute to the corporate craziness with their music and receive very little in return. As a musician, the best move you can make is to put money in the stock market and invest in Pandora stock (Spotify, too, when it’s available). You should not contribute your unique sound to their portfolio of music.
Let us tell you why: if companies like Pandora and Spotify continue to make it big, you will not receive any of the benefits, and they will ruin the music business. Sure, they offer to expose you to large numbers of people who will listen to your music. But at what cost?
Some musicians believe using these companies results in additional sales of their music along with increased exposure, which is ultimately good for their careers. We believe this to be far from the truth. Our own experiences seem to demonstrate the complete opposite of these claims.
Confessions Of A Streaming Junkie
When we play music on Pandora, we enjoy the experience. Their technology does a nice job of playing music that we like, and it comes up with new artists that we have never heard of before. We have no control over who plays next, but we can select an artist or song that we want Pandora to consider when choosing what music to play. It also allows us to skip a song, hit thumbs up, hit thumbs down, etc. The software learns more about what we like and makes adjustments to better fit our listening style. All good, so far. (Good for users, that is).
This is what makes Pandora so compelling. Free music that is tailored to our listening tastes is much better than a traditional radio station! In fact, if we are willing to invest just $0.10 per day (that’s 10 cents), we can get the music without any commercials. Wow, what a deal!
Spotify is a little different. It offers more overall functionality through its apps, artist radio, library function, messaging, etc. The biggest difference for users is that they can create playlists and choose exactly what they want to listen to. Spotify will also make artist recommendations, but not in the same way as Pandora. Spotify offers a free service for a limited time but you can pay just $0.334 per day (that’s 33.4 cents) to get full access without commercials. Some people we know, in an effort to avoid paying anything, keep signing up for the 30-day free trial after the initial trial period expires by using a new email address. Spotify also lets paying users download playlists to listen to offline.
Truthfully, both services are great for the listener, and that is what makes them so popular. Several other streaming services are also available that offer similar features. Every one of them is focused on the listener experience, and most do an acceptable job. This is where the problems begin for musicians. Fans love these products for what they offer: your music the way they want it. Most importantly, it’s free (or almost free) and it enhances the listener experience.
Since we began using streaming services, our purchases of music have dropped considerably. In fact, we no longer open iTunes to listen to our library of music. There is no need. Why would we do that when we can access everything we want on a streaming player? Plus, the players offer features that iTunes does not. (While we might be unique, our conversations with others suggest that we aren’t the exception.)
The Tale Of The Tape
An artist friend of ours recently showed us her statement of income from digital streaming services. Over the past 12 months, she had a total of 14,932 streaming downloads and was paid $71.02. This is an average of $0.004756 per stream.
During the same period, she sold 2,200 CDs at her gigs. The income from the CD sales was $20,300.00. It is only fair to note that she had to pay something for the CDs to be manufactured, but that cost was only $2,046.00, making her net income from the CD sales $18,254.00.
In addition to the sales of physical CDs at gigs, our friend did have some sales from digital downloads of music on iTunes. iTunes is her only way to sell digital downloads; because she mentions it frequently at her shows, she believes that most of her sales on iTunes come from people who attend her shows. For the same period that we mentioned above, her album sales on iTunes were 113 albums for a total of $668.57.
Let’s run those numbers. She made 257 times more money selling CDs at her gigs than she did with streaming her music. That’s impressive… or, it might be more appropriate to say that the streaming income was dismal. Either way, she would not have survived without the physical CD sales at gigs. (She also made money on other merchandise sales and a fee from doing the gig, but we are not including that income in our example.) She could have gone to the gigs and not sold any product, but who would choose to do that?
You might make the argument that she had to gig to sell physical CDs, whereas with streaming services you don’t have to do anything other than sign up, and you would be mostly correct, but…
We want you to consider one thing: the expense to create quality music is significant. Even if you do not place a value on the time it takes to write music, write lyrics, practice, etc., the production costs are still high. (Just for the record: we think you should consider all time and effort necessary to produce your music. Even if you don’t write yourself a check for your time, it doesn’t mean it’s free.)
It would be fair to say that a solo indie artist could easily spend $3,000 to $5,000—excluding the cost of CDs or paying other artists—to produce one album, if they stayed on a tight, tight budget. How do the numbers work? Let’s suppose you spend $3,000 to produce your album and then posted it with several music streaming companies. If you used our artist friend as a test case, it would take 40+ years just to recoup your initial investment. Even if you are an incredible success and experience 10 times as much play as she did, it would still take more than 4 years to get your investment back. That’s 630,782 streaming plays just to break even. Of course, you haven’t made any money yet.
So, What Can Artists Do?
Clearly, streaming music complicates things, and it’s not the best business plan for an independent musician to adopt. If you feel that streaming is a necessary part of your music marketing plan, then try posting just a single song or a small sampling of your work. Hopefully, this will help you gain exposure with a larger audience, who will then purchase your music.
Is the future of the indie music business bleak? Absolutely not. There is a great deal more to it than streaming downloads. The future holds great promise, and as an artist you have to be prepared to grab it. For indie artists, the biggest challenge remains the same: how do you, as an independent artist, build a sustainable career?
We’ll continue addressing that question in future articles.